Soaring flood insurance seen sinking values

LOOKING FOR OPTIONS: Conimicut property owner Ralph Bozzi (left) talks with Tom Young of the National Flood Insurance Program at the information held last week by the Rhode Island Emergency Management Agency and FEMA.

Warwick Beacon photos

FEW LIKED THE ANSWERS: State floodplain coordinator Michelle Burnett outlined the impact of 2012 federal legislation that phases out flood insurance subsides at Wednesday’s meeting.

Moving up or paying off the mortgage may be the only ways for some residents to afford to continue living in some of the city’s shoreline and low areas, and that’s because flood insurance promises to become prohibitively expensive.

Already, 1,867 Warwick property owners are paying $2.7 million in flood insurance premiums to cover $423 million in property value, according to Michelle Burnett, State Floodplain Coordinator with the Rhode Island Emergency Management Agency. That’s an average of $1,446 per policy.

That’s a bargain compared to potential premiums of $25,000 for $250,000 of coverage for a property 10 feet below the base flood elevation being mentioned in information provided by the Federal Emergency Management Agency. Under federal legislation, federal flood insurance subsidies are being phased out, meaning some property owners can expect to see their premiums increase annually by 20 percent and as high as 25 percent in the next several years.

Those numbers left many of the 60 attending a FEMA/RIEMA sponsored informational session last Wednesday at City Hall shaking their heads in disbelief, no less questioning what they will do. They aren’t the only ones wondering about the impact on Warwick, not to mention the state.

“It’s almost like confiscation of one’s property,” said Donald Morash of Abbott Properties.

Morash did not attend Wednesday’s session, but he expects the dramatic increase in flood insurance premiums will “have an effect on everybody’s property values.” For those with property within a flood zone, values will decline as properties become increasingly difficult to sell as potential buyers take the added costs into consideration.

Traditionally, shoreline properties are assessed a higher value but, as those values decline, a greater proportion of the tax burden will be borne by other taxpayers.

“This is another devastating blow to the economy,” said Morash.

Robert DeGregorio, a realtor with The Slocum Agency, agrees.

“It’s going to put the brakes on the economy,” he contends.

He sees other far-reaching negative effects. He said the cost of flood insurance would put many people out of the market and make shoreline property only available to the wealthy. Further, as there are many modest homes in flood zones, these people would be forced out of their homes.

Once considered a small piece of the cost of owning property – compared to a mortgage and taxes – flood insurance promises to become a major factor and a deal-breaker.

The alternative, as Tom Young made clear Wednesday night, is to take action to mitigate the devastation of flood or storm waters by elevating habitable areas of a house above the base flood elevation. Young, of the National Flood Insurance Program, made it sound easy, although that surely won’t be easy or even possible for many people.

“If you know what to do to take yourself out of the flood zone, do it,” Young urged. “I hate to pay flood insurance premiums.”

That was certainly a statement many could agree with.

Apart from physically jacking up houses, filling basements and elevating utilities, Young talked of obtaining elevation certificates. Certificates can cost about $700 and, to be valid, must be performed by a qualified surveyor, engineer or architect. The certificate states the elevation of the house, which, in concert with the flood plain map, determines where it is in relation to the base flood elevation. Young suggested neighbors might reduce their individual costs by collectively contracting to get their certificates.

By happenstance, new flood zone maps are being implemented at the same time that the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012 is going into effect. The new maps were a main attraction at the informational session. Due to their good fortune, some property owners learned that they are no longer in a flood zone, thereby exempting them from the necessity to insure. Others learned they are in a zone or, in some cases, moved into a velocity zone that takes into account the effect of wave action. Their insurance premiums will increase because velocity zones are at a higher risk.

Also, as learned at the meeting, elevating livable areas above the base flood elevation is not simply a matter of meeting flood codes that took effect when insurance rate maps were implemented in Warwick in 1973. Houses built in flood zones since then don’t have basements and are constructed on pilings that elevate the first floor of livable space above the flood elevation.

In some sections of the city, especially in Conimicut and Oakland Beach, this can be more than 14 feet. The first level of these homes have been designed “to break away” during a flood or storm surge. However, if the area enclosed is more than 300 square feet, regardless of the breakaway features, it is considered livable, said Burnett.

Warwick properties receiving subsidized insurance rates were built prior to 1973. Business properties and severe repetitive loss properties will see subsides reduced by 25 percent a year starting on Oct. 1. Full-risk rates for all property owners are being phased in at 20 percent a year.

Another option to the mitigation or sale of a property is to self-insure.

This is not easy, since the government requires banks to obtain flood insurance on mortgages and loans for property within a flood zone.

The regulations have Ralph Bozzi befuddled. The owner of more than eight Conimicut properties, Bozzi said Wednesday that he has stopped construction on one house because he can’t make out what measures he must take to minimize his insurance cost.

“I’m always fighting the system,” he protested.

Burnett said RIEMA and FEMA are taking Mayor Scott Avedisian’s request that a second public information session be held for Kent County and Providence County under consideration because there was less than a week’s notice for Wednesday’s meeting. About 20 RIEMA and FEMA officials were in attendance Wednesday. The city’s emergency management director, Fire Chief Edmund Armstrong, and Ward 4 Councilman Joseph Solomon were also present.

“It is totally disheartening to me,” Solomon said yesterday.

Solomon said he and his friends and neighbors “got blindsided by this.”

“A lot of residents are going to incur exorbitant costs for flood insurance,” he said. “For many on fixed income, it ultimately is going to be cost-prohibitive.”

Solomon has a waterfront house in Conimicut and will experience a phaseout of a subsidized rate.

Solomon predicted that, with increased rates, there would be more for sale signs and more unoccupied homes, leaving only the “high rollers.”

“It’s going to take away the personality of the community,” he said.

Solomon urged residents to contact the state’s congressional delegation and voice their concerns.

Comments

Cash buyers are going to be the only ones left. Once again the shore becomes even more exclusive to the rich. I feel sorry for anybody that's bought from 2000-2007. There hasn't been enough time for them to build enough equity to be close to paying the mortgage off, and the mortgage is most likely underwater. Those people may find themselves filing bankruptcy. Changing the rules on how things have been traditionally done should be phased in a lot slower and at a lot lower rate increase. These are people that have played by the rules. If FEMA bailed out people in NOLA and N.J. with no insurance and bailed out people in the floods of 2010 that didn't have insurance these people should be treated a lot better.

Insurance premiums are priced according to the level of risk incurred by the insurance company. A strong argument can be made that flood insurance should also be priced by risk. However, these homeowners bought their houses under one set of assumptions, and those rules are being dramatically changed mid-stream. Life insurance premiums do not change once the policy is in force. These new flood insurance rates need to be phased in over, say, 20 years. Patientman is correct: Cash will be king, to the extent that it is not, already. I have no problem with 'government subsidies' being phased out, as long as they are also phased out for cell phones, dental care, food stamps, Section 8 housing, etc.

Great points JS. The homeowners sort of have a pre-existing condition and now the insurance company (fema) is changing the terms. When people in health care plans have a pre-existing conditions they too are subsidized by the others in the health plan. This should be phased in extremely slowly. Not at all like the current plan.

I hope everyone who maintains a flood insurance policy reads this comment...

Let's talk about forced place flood insurance.

When the big flood hit in 2010 I had a $150,000 dollar flood insurance policy that I wasn't having a problem affording.

When I signed my mortgage note with my local bank the flood insurance clause on the note stated that I was to maintain flood insurance coverage on the 'lessor of'.... either the amount of the loan or the replacement cost value of my home. Which ever was LESS.

I was happy that the clause read that way because I could not really swing a flood insurance policy based on 'replacement cost' which was $250,000.

So I agreed to get the mortgage thru this local bank and signed the note back in 2004.

In 2012 the local bank contacted me and said.. guess what!... We now require you to maintain flood insurance on the replacement cost value of your home rather then what you owe us.

They also went on to say that if I chose NOT to get my flood insurance policy upgraded from $150,000 coverage to $250,000 dollar coverage they would get a policy themselves for my house and I would be responsible to pay for the policy.

So like it or not, I was 'forced' into obtaining a policy for $250,000 coverage.

When the big flood hit in 2010 my home received 9.5 ft of water forcing me out of the house into a camper for over a year in my driveway while my entire house was reconstructed from the ground up.

At that time my policy was still based on the loan amount so my policy limit was $150,000 dollars.

I had more then enough money to rebuild the entire house and do not understand why I was forced to increase my policy coverage to $250,000 by my local bank.

Not once during the entire time my house was being rebuilt did my bank suffer any financial hardships. I have always paid my monthly payments to them since the start of my mortgage in 2004 as well as maintained a 800+ credit score.

I don't think it's right that banks do not stand behind their mortgage contracts.

Many call what they did a 'breech of contract' or 'bait and switch' deal.

They get me in and tell me I only have to provide them with a $150,000 dollar policy to cover the loan amount at time of 'signing' (that's the bait) then later.. force me to upgrade my policy (the switch) to full coverage replacement cost of my home.

Is anyone reading this that can do something about what they did?

Has this happened to anyone else in Warwick, RI by any chance?

A search on the internet terms similar to these will display just which bank I'm talking about.

I believe this same bank just settled a class act law suit involving 100's of customers of theirs, pertaining to unlawfully charging customers for over draft fees.

I have contacted this banks flood insurance underwriter's department asking them to please allow me to maintain a policy for the amount of the loan (which I can afford) rather then full coverage replacement cost value and they have flat out denied my request.

They just tell me.. we decided to change our policy and we are not making any exceptions for anyone... PERIOD.

I am retired on a fixed income now and can not pay these enormous flood insurance premiums my bank has forced me into paying.

I'm being forced right out of my house.

I contacted the attorney general's office and they said they do not offer assistance with bank related issues but referred me to FDIC Consumer Finance department.

For those of you interested their website is at: www.consumerfinance.gov

If you file a complaint with the FDIC they will investigate the complaint.. contact the bank and either resolve the issue or get an explanation as to why they decided to 'breech their signed contract' to the home owner.

I am currently in the process of filing my complaint with them accordingly and will not stop at the FDIC if I am not satisfied with the end result.

If you've been forced to UP your flood insurance poicy against your will by your bank, you TOO should do something about it.

Don't just sit back and be pressured out of your home because of financial stress.